Essay on E-Commerce and Supply Chain Management

Abstract

E-commerce has emerged as one of the most important concepts in SCM in recent years. It has essentially transformed the entire process of supply chain management. This paper explores the impacts of e-commerce on supply chain management. Notably, the paper will illustrate that e-commerce has resulted in increased demand for taller and larger warehouses. Most e-commerce companies are prospecting for stores where they can dispatch their goods. The paper also shows that e-commerce has transformed the dynamics of the relationships in SCM. Fulfilment stores have replaced the role played by the traditional stores. E-commerce has also resulted in increased efficiency in the supply chain. Companies need now not necessarily set up physical locations.

Introduction

How has e-commerce changed the supply chain management? Most of the focus has been put on the role of supply chain management in e-commerce. However, the effects of e-commerce on supply chain management are equally important. Between 2018 and 2019, e-commerce sales rose by 13% as a component of all retail sales in the USA (Rakuten). The highly interconnected nature of e-commerce and supply chain management has forced businesses into a ‘do or die’ situation. Notably, e-commerce has forced businesses to update their existing SCM frameworks or risk getting lost in an era where the competitors are increasingly becoming more efficient. E-commerce main impact on supply chain management is that unlike the conventional modes of shopping, it requires goods to be shipped to the buyer; therefore, exalting additional pressure on a company’s supply chain (Laudon & Traver , 2016). E-commerce has transformed supply chain management in that it has led to cost reductions, changed the demand patterns and the relationships between buyers and sellers, increased room for logistics and modified the traditional roles.

How E-commerce is changing Supply chain management

Increased Importance of Customer Centricity

E-commerce has affected SCM in that it has led to a renewed focus on customer centricity. This is because e-commerce links customers and suppliers in a unique, direct and quantifiable way. As a result, it is easier for companies to discern better the needs and demands of their customers. Previously, it was challenging for businesses to communicate with their customers as they were disconnected from the supply chains (Laudon & Traver 2016). E-commerce has made it easier for suppliers to gather data directly from customers and subsequently share it with the manufacturers. The ‘online nature’ of e-commerce also means that individuals who were previously considered inaccessible are now continually encouraged to build their presence online, and in particular, through social media channels.

Spearheaded the construction of larger fulfilment centres worldwide

E-commerce has completely transformed supply chain management by spearheading the construction of more and relatively larger fulfilment centres throughout the world. The increased demand for e commerce warehousing has resulted in a surge in the number of fulfilment centres. The high demand for e-commerce warehousing has also led to changes in both the size and height of warehouses. Currently, most businesses are constructing comparatively larger and taller warehouses. In their report, CBRE data found that the average height of warehouses had grown to thirty-three feet in 2017 compared to twenty-foot feet about fifty years ago (Rakuten). The increase in the size and height of e-commerce warehousing is set to continue with several e-commerce companies being reported for prospecting 40 feet high e-commerce warehouses (Rakuten).

Moreover, between 2010 and 2016, approximately 13.7 billion cubic feet of warehouses space got built. Circa sixty-five percent of these warehouses spaces were built in the top ten USA’s largest markets (Rakuten). As it stands, e-commerce businesses are purchasing warehouses at a relatively fast rate compared to other companies. Arguably, this encapsulates best the effect e-commerce has had on supply chain management. Besides, in 2016, there was a 25% growth of e-commerce purchases and a six per cent reduction in the brick and mortal purchases (Rakuten).

In their 2016 study, Pricewaterhouse Coopers found out that e-commerce businesses require three times as much warehousing space as the conventional retailers (Rakuten). Notably, at the time giant e-commerce company, Amazon owned about 100 million square feet of warehouse space spread across 150 warehouses (Rakuten). The surge in the demand of warehouses (fulfilment centres) by e-commerce businesses can be attributed to the fact that the warehouses allow the firms to scale their operations. Specifically, the warehouses allow the companies to reduce their fixed costs and increase the volume of their operations.

Increased Demands of Customer Services

While there is the necessity of smooth e-commerce, supply chain ostensible grows unavoidably day-by-day towards B2C and B2B shoppers every single day. There is a more pressing urge for the shipper’s e-commerce to meet the external and internal demands. E-commerce is delving deep into the point of the urgent necessity of the importance of commerce towards satisfaction and relation, including blockades in achieving a successful supply chain strategy in terms of e-commerce suppliers. One of the reports’ primary findings showed that 70 % and 60 % of B2C and B2B companies respectively aimed at the full implementation of their respective e-commerce supply chain strategies (Rakuten). Besides, more than seventy percent of all the respondents note that e-commerce “is significant” because it is attached to volume and retail.

Furthermore, the customer is a very significant determinant of e-commerce, and therefore his voice has to be well considered. Their voice, therefore, is a very formidable tool that companies employ to evaluate themselves. And also, how they can impact the process of shipping to improve their services to the B2C and B2B consumers is very important.

Innovation technology advancement

There is a formidable significant impact on how the businesses are carrying forth its day to day activities. This is attributed to up-to-date and access to real-time information. With the dynamic element of technology, it tends to be complicated for large businesses that are still stuck in older technology because the change takes an infinite course. Although the shift may drag, being in tandem with the technology as it takes a whole new shape altogether is very crucial. E-commerce has opened up a world of greater efficiency in business activities. For instance, technology such as RFID (radio-frequency identification) is a unique technique of data capture and automatic identification since RIFD can be placed inventory, clothing, or any item (Rakuten). It makes it very possible to trace the details and also can be applied to many aspects of the supply chain. It further reduces labour charges by reducing error-prone processes and shaping up data capture. Furthermore, improved information channel creates the probability of high utilization of assets and hence reducing the challenges along with the delivery of items and reducing empty miles from the transportation channel (Rakuten).

Reverse Supply Chain Management 

Over the recent past, retailers have considerably improved on the supply chain. Still, with time, many retailers are faced with a different dimensioned problem: returning goods, which is well defined as the “reverse supply chain.” It was reported that each year, out of the 3,668 Billion dollars on the retail industry sales, 369 billion transactions were brought back as retailers returned purchases (Balakrishnan & Geunes, 2004). This is not expected to get any better soon. Thanks to the emergence and escalation of e-commerce, giving out free returns and free shipping became possible.

Focusing on returns of merchandise as a retailer instead of a single return enables it positioned at the second number for a significant amount of sales worldwide. This is because the process is paining the retailers massively. They not only lose money during this process but also lose value warehouses space. They also have to engage with the uncertainty pattern of the reverse supply chain. It is different from the forward supply chain, which is kept in check by trends and seasons. The reverse chain can turn out to be extremely erratic for retailers devoid of the right analytics technology (Balakrishnan & Geunes, 2004).

Cost efficiency

E-commerce has resulted in cost efficiency in that it has enabled e-commerce enterprises to conduct their transactions digitally, relieving them of the struggle of sending products and documents physically. Unlike the traditional brick and mortar system, e-commerce enables companies to streamline their products and document handling without additional resources and time needed (Fernie & Sparks, 2018). E-commerce, in particular, has allowed firms to reduce aggregate costs in their supply chains. It has also enabled companies to accelerate their business cycles and enhance data accuracy. All these have culminated in improved customer service.

Transformed the relationships between service providers and retailers

In the past, businesses wielded greater power over their customers. They were in charge of their relationships with the customers. However, the emergence of e-commerce has resulted in the change in the dynamics of customer and business relationships. E-commerce has accorded customers with greater power to take the lead and direct the way companies and retailers meet their needs and wants. Partly, this explains why supply chain management has increasingly become customer-centric (Yu et al.,2016). Currently, some of the e-commerce companies have had to incorporate the same day delivery to enhance customer satisfaction.

Transformation of the traditional roles

In the past, distribution centres, stores, and transportation providers played different roles in the supply chains. However, e-commerce has changed the role the above named items play in the supply chain. For instance, currently, some of the stores have been transformed into fulfilment centres. In these fulfilment centres, the online orders made by the customers are usually picked, packed and eventually shipped to the customers (Laudon & Traver, 2016). The fulfilment centres have also facilitated the same day delivery.

Changed demand patterns

E-commerce has significantly transformed the demand patterns. As it stands, globalization, e-commerce, and technology are all fully intertwined. E-commerce businesses have fully taken advantage of these dynamics to expand their connectivity with their customers and expedite their transactions (Fernie & Sparks, 2018). E-commerce has enabled businesses to communicate directly with their customers to meet their needs and demands.

Implications

Overall, from the preceding section, it is apparent that e-commerce has revolutionalized supply chain management presenting businesses with myriads of opportunities to scale up their operations. Businesses can now reach more customers without necessarily having to worry about geographical limitations. The fulfilment centres mean now that the customers who were previously inaccessible can now be accessed.

Further, e-commerce has enabled businesses to respond better to the needs of their customers. Unlike before, businesses can now directly interact with their customers. Thus, they can know better what their customers need and thus respond to them effectively. For example, the ‘same day delivery concept’ arose from the customer demands that their goods be delivered on the same day. Expectedly, supply chains will continue to mutate as businesses strive to discover better ways of responding to the needs of their customers better.

Moreover, e-commerce has allowed businesses to scale up their operations. Currently, there is no need for physical set ups. Companies can lease warehouses from where they will be delivering goods to their customers. The savings made from setting up physical locations can be used by companies to make their supply chains increasingly more efficient.

Despite the innumerable benefits that e-commerce presents to supply chain management; it also presents equally more risks. Mechanical failures in the supply chain may have catastrophic effects on the entire process. Further, because there is direct contact between customers and companies, this means that businesses are always kept under tight control by the customers.

To sum it up, the paper has presented a robust discussion on how e-commerce has affected supply chain management. The paper has shown that e-commerce has resulted in increased efficiency of the operations. The paper has also shown that e-commerce has transformed the dynamics in SCM.

References

Balakrishnan, A., & Geunes, J. (2004). Collaboration and coordination in supply chain management and E-commerce. Production and Operations Management, 13(1), 1-2. Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-com.ezproxy.liberty.edu/docview/228676022?accountid=12085

Fernie, J., & Sparks, L. (Eds.). (2018). Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.

Laudon, K. C., & Traver, C. G. (2016). E-commerce: business, technology, society.

Rakuten. (n.d.). eCommerce Growth is Changing the Modern Supply Chain: Rakuten SL. Retrieved December 11, 2019, from https://www.rakutensl.com/post/how-ecommerce-is-transforming-todays-supply-chain.

Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2016). E-commerce logistics in supply chain management: Practice perspective. Procedia Cirp, 52, 179-185.